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529 savings?

Posted: Sat Oct 05, 2019 8:49 pm
by TarHeel2002
Retirement savings are on track (I hope!) so just focusing on 529 accounts here. Three kids 8, 6, and 0. I am 39 yo married.

Current account balances:

8 year old = 52k
6 year old = 34k
0 year old = 4k

We're currently saving 6k per kid per year. Planning on keeping this savings rate up until each child reaches the age of 18 or 19. Hoping to fully fund in state tuition for flagship university of our state. Does this seem reasonable? Should I try to increase / decrease funding? I wish I could super fund all three accounts but that's not possible. I could step of savings rate maybe another couple hundred per kid but I thought that might be overdoing it? Any thoughts are appreciated! :D

Re: 529 savings?

Posted: Sat Oct 05, 2019 8:53 pm
by awval999
I think that's reasonable -- if not excessive compared to your goal of state flagship tuition. Do you wish to include room/board?

Very similar here. First son just turned 1. We're saving $300/month or $3600 year. If growth equals tuition inflation that will be $65,000 real at age 18, which is enough for four years of tuition and 2 years of room/board. Assuming some small scholarships, that should be very close to enough for us. Rest could be cash flowed, if necessary, by then.

Re: 529 savings?

Posted: Sun Oct 06, 2019 9:42 am
by MikeG62
TarHeel2002 wrote:
Sat Oct 05, 2019 8:49 pm
Retirement savings are on track (I hope!) so just focusing on 529 accounts here. Three kids 8, 6, and 0. I am 39 yo married.

Current account balances:

8 year old = 52k
6 year old = 34k
0 year old = 4k

We're currently saving 6k per kid per year. Planning on keeping this savings rate up until each child reaches the age of 18 or 19. Hoping to fully fund in state tuition for flagship university of our state. Does this seem reasonable? Should I try to increase / decrease funding? I wish I could super fund all three accounts but that's not possible. I could step of savings rate maybe another couple hundred per kid but I thought that might be overdoing it? Any thoughts are appreciated! :D
Hard to know what college costs will be 10 or 20 years from now. Having said that, you seem to be in a good place and your plan seems reasonable to me. Assuming these funds are invested with an appropriate asset allocation (fair allocation to equities) there should be decent growth beyond just the new additions each year.

Re: 529 savings?

Posted: Sun Oct 06, 2019 9:59 am
by Bacchus01
Do you get a state tax deduction? Many (myself included) would argue that the benefit of a 529 without a Tate tax deduction is greatly diminished to the point that the LLC of flexibility may outweigh the tax gains and you are better off in after-tax and skipping the 529s.

But there are a lot more things in play here.

In our case, we get a 7% state tax deduction up to $3150 per person for year. We contribute that amount for each of our kids as well as my wife and me. We then transfer between accounts as necessary to pay. We have just one in college right now. We expect to continue contributing that amount every year provided that the state tax deduction applies. If it didn’t, we would not bother.

Re: 529 savings?

Posted: Sun Oct 06, 2019 4:02 pm
by TarHeel2002
Thanks for the replies. We get a state tax deduction of 4.25% up to 10k of contributions. We will be exceeding this deduction limit going forward with 18k of contributions per year in total. I have them all in the age banded moderate aggressive state sponsored 529 fund so they have decent exposure to equities ...72% equites for the youngest and 63% equities for the older two.

Re: 529 savings?

Posted: Sun Oct 06, 2019 4:34 pm
by EnjoyIt
If you are looking for in-state tuition, you may be saving a little too much in my opinion. If you are looking for expensive private school, then you may be saving too little. Personally I like the idea of being somewhere in the middle as you currently are. Plus, if you are saving $6k/yr, that means you will be able to pay $6k/yr during those college years if you need to. Don't forget, you are currently spending money by having that child at home. When they leave home, that money can be diverted to help fund education as well and may be worth a couple of thousand dollars a year. Together that may be $32k+ that you will be able to add towards education for those 4 years.

I know you want this to be just about 529, but you mentioned that your retirement savings are on track, at least you hope that it is. Needless to say, make sure your retirement savings really are on track. People can't live on hope alone. Just make sure you really are on track. I may even advise being a little ahead as opposed to on track because anything can happen.

Re: 529 savings?

Posted: Sun Oct 06, 2019 5:09 pm
by RickBoglehead
You may want to fund the oldest child's account with more than the others, although you can easily move fund from account to account as needed so perhaps only if you need to.

I would point out that IF you move out of state, tuition would go up dramatically.

Our top state school charges over 3 times the rate for out of state students. Room and board is the same for all students, and is in addition.

Re: 529 savings?

Posted: Mon Oct 07, 2019 7:20 am
by FreemanB
I think your plan is fine, and almost exactly matches my own. Our daughter is 7, we've got around $50k saved currently, and we are saving approximately $6k/year as well. My goal is to have enough in savings to cover at least 75% of college. Having 100% saved would be a nice bonus, but we'll easily be able to cover minor shortfalls with cash flow. There's too big of a variation in college costs for any single plan to cover every eventuality(Without the risk of over-saving), so I think this is a very reasonable approach.

Re: 529 savings?

Posted: Mon Oct 07, 2019 7:30 am
by HomeStretch
TarHeel2002 wrote:
Sun Oct 06, 2019 4:02 pm
We get a state tax deduction of 4.25% up to 10k of contributions. We will be exceeding this deduction limit going forward with 18k of contributions per year in total.
Your state may allow you to carry forward contributions above the deduction limit to future years.

Re: 529 savings?

Posted: Mon Oct 07, 2019 7:36 am
by Bacchus01
TarHeel2002 wrote:
Sun Oct 06, 2019 4:02 pm
Thanks for the replies. We get a state tax deduction of 4.25% up to 10k of contributions. We will be exceeding this deduction limit going forward with 18k of contributions per year in total. I have them all in the age banded moderate aggressive state sponsored 529 fund so they have decent exposure to equities ...72% equites for the youngest and 63% equities for the older two.
I would not contribute above the state tax deduction.

Also check if you can open an account for yourself and your spouse and pass down to take more tax deductions.

You can keep contributing while they are in school to keep the tax benefit going.

$18k per person per year seems like you’ll be way overfunded in my opinion. If that’s $6k per, that sounds better.

Re: 529 savings?

Posted: Mon Oct 07, 2019 9:52 am
by goodenyou
I will speak from my experience. Funds in a 529 Plan will not cover all the expenses related to college. That is, all the expenses related to college will not be qualified. Travel costs, some discretionary spending money and most importantly costs that exceed the published cost of attendance. We have found that you have to expect some cash flowing costs outside the 529 if you don't want to pay the 10% penalty. In our case, it was significant since our children lived in apartments that exceeded the cost of room and board by a significant amount. Therefore, you don't want excess money "trapped" in a 529 Plan.

Re: 529 savings?

Posted: Mon Oct 07, 2019 10:04 am
by stoptothink
goodenyou wrote:
Mon Oct 07, 2019 9:52 am
I will speak from my experience. Funds in a 529 Plan will not cover all the expenses related to college. That is, all the expenses related to college will not be qualified. Travel costs, some discretionary spending money and most importantly costs that exceed the published cost of attendance. We have found that you have to expect some cash flowing costs outside the 529 if you don't want to pay the 10% penalty. In our case, it was significant since our children lived in apartments that exceeded the cost of room and board by a significant amount. Therefore, you don't want excess money "trapped" in a 529 Plan.
Depends on your specific situation. We're likely going to be pushing our children towards the local public which my wife attends right now. Our annual state deduction max (per individual) is more than 1/2 of what it is costing us to cash-flow wife's total cost of attendance. As it sits, with them 7 and 4, they both already have 2yrs of (current) total cost in their accounts. I don't have a crystal ball, but if we were to hit the state deduction max every year it is highly likely we'd be significantly overfunded (if they go to local U...if not, they aren't getting more money from us just because they wanted to go somewhere else). Also, it may make sense to leave enough space to take advantage of the AOC credit without having tax issues with 529 distributions.

Re: 529 savings?

Posted: Mon Oct 07, 2019 6:49 pm
by victw
TarHeel,

Congrats on the great progress. I looked at a couple of your other posts. Do you have adequate disability insurance? Term life insurance?

It looks like you are doing a great job of saving and providing for your family.

Vic

Re: 529 savings?

Posted: Mon Oct 07, 2019 7:47 pm
by TarHeel2002
Thank you Vic! :D

I really appreciate the kind words. I'm always questing if I'm doing the right thing and making the most of my situation. Life is such a juggling act. Your words really mean a lot!

I do have disability insurance through Guardian (9k month) and 2.5MM term life insurance...both of which I hope to never need. :sharebeer

Re: 529 savings?

Posted: Tue Oct 08, 2019 7:02 am
by MD9NYC
TarHeel2002 wrote:
Sun Oct 06, 2019 4:02 pm
Thanks for the replies. We get a state tax deduction of 4.25% up to 10k of contributions. We will be exceeding this deduction limit going forward with 18k of contributions per year in total. I have them all in the age banded moderate aggressive state sponsored 529 fund so they have decent exposure to equities ...72% equites for the youngest and 63% equities for the older two.
In NY, since I have exceeded the $10k contribution deduction, I found a loophole that may help you. I was planning on funding my daughters account with $70k after a year-end bonus so I opened up 6 different 529 accounts with various states. I did $20k to NY (one in January and one in December) and $10k to each of the other 5 state accounts. Each subsequent year, I roll $10k from another state plan over to NY which qualifies for the deduction.

Re: 529 savings?

Posted: Tue Oct 08, 2019 9:16 am
by EnjoyIt
MD9NYC wrote:
Tue Oct 08, 2019 7:02 am
TarHeel2002 wrote:
Sun Oct 06, 2019 4:02 pm
Thanks for the replies. We get a state tax deduction of 4.25% up to 10k of contributions. We will be exceeding this deduction limit going forward with 18k of contributions per year in total. I have them all in the age banded moderate aggressive state sponsored 529 fund so they have decent exposure to equities ...72% equites for the youngest and 63% equities for the older two.
In NY, since I have exceeded the $10k contribution deduction, I found a loophole that may help you. I was planning on funding my daughters account with $70k after a year-end bonus so I opened up 6 different 529 accounts with various states. I did $20k to NY (one in January and one in December) and $10k to each of the other 5 state accounts. Each subsequent year, I roll $10k from another state plan over to NY which qualifies for the deduction.
You may be correct but it makes no sense. It would mean you can put $10k this year in. nY 529 and get the deduction. Next year you move the $10k to Utah and then move it back to NY getting another deduction.

I would make sure your plan is legit.

Re: 529 savings?

Posted: Tue Oct 08, 2019 9:55 am
by flarf
Indeed -- contributions up to $10k per couple are deductible in NY, but rollovers are not.

Re: 529 savings?

Posted: Tue Oct 08, 2019 10:26 am
by markcoop
EnjoyIt wrote:
Tue Oct 08, 2019 9:16 am
MD9NYC wrote:
Tue Oct 08, 2019 7:02 am
TarHeel2002 wrote:
Sun Oct 06, 2019 4:02 pm
Thanks for the replies. We get a state tax deduction of 4.25% up to 10k of contributions. We will be exceeding this deduction limit going forward with 18k of contributions per year in total. I have them all in the age banded moderate aggressive state sponsored 529 fund so they have decent exposure to equities ...72% equites for the youngest and 63% equities for the older two.
In NY, since I have exceeded the $10k contribution deduction, I found a loophole that may help you. I was planning on funding my daughters account with $70k after a year-end bonus so I opened up 6 different 529 accounts with various states. I did $20k to NY (one in January and one in December) and $10k to each of the other 5 state accounts. Each subsequent year, I roll $10k from another state plan over to NY which qualifies for the deduction.
You may be correct but it makes no sense. It would mean you can put $10k this year in. nY 529 and get the deduction. Next year you move the $10k to Utah and then move it back to NY getting another deduction.

I would make sure your plan is legit.
I believe when you move it to Utah, NY will recapture the deduction. So, no real gain.

I am not an expert, but I believe rollovers into NY's 529 plan are deductible. Along a similar line, you can rollover a Coverdell IRA into NY's 529 and get a deduction as well.

Re: 529 savings?

Posted: Tue Oct 08, 2019 10:29 am
by vrr106
TarHeel2002 wrote:
Sat Oct 05, 2019 8:49 pm
Retirement savings are on track (I hope!) so just focusing on 529 accounts here. Three kids 8, 6, and 0. I am 39 yo married.

Current account balances:

8 year old = 52k
6 year old = 34k
0 year old = 4k

We're currently saving 6k per kid per year. Planning on keeping this savings rate up until each child reaches the age of 18 or 19. Hoping to fully fund in state tuition for flagship university of our state. Does this seem reasonable? Should I try to increase / decrease funding? I wish I could super fund all three accounts but that's not possible. I could step of savings rate maybe another couple hundred per kid but I thought that might be overdoing it? Any thoughts are appreciated! :D
The 2 benefits of 529s are tax free growth and state tax breaks. To maximize tax free growth you should fund as much as you can now. To maximize state tax break, contribute enough to get the break. That's your math equation.

Re: 529 savings?

Posted: Tue Oct 08, 2019 2:29 pm
by EnjoyIt
markcoop wrote:
Tue Oct 08, 2019 10:26 am
EnjoyIt wrote:
Tue Oct 08, 2019 9:16 am
MD9NYC wrote:
Tue Oct 08, 2019 7:02 am
TarHeel2002 wrote:
Sun Oct 06, 2019 4:02 pm
Thanks for the replies. We get a state tax deduction of 4.25% up to 10k of contributions. We will be exceeding this deduction limit going forward with 18k of contributions per year in total. I have them all in the age banded moderate aggressive state sponsored 529 fund so they have decent exposure to equities ...72% equites for the youngest and 63% equities for the older two.
In NY, since I have exceeded the $10k contribution deduction, I found a loophole that may help you. I was planning on funding my daughters account with $70k after a year-end bonus so I opened up 6 different 529 accounts with various states. I did $20k to NY (one in January and one in December) and $10k to each of the other 5 state accounts. Each subsequent year, I roll $10k from another state plan over to NY which qualifies for the deduction.
You may be correct but it makes no sense. It would mean you can put $10k this year in. nY 529 and get the deduction. Next year you move the $10k to Utah and then move it back to NY getting another deduction.

I would make sure your plan is legit.
I believe when you move it to Utah, NY will recapture the deduction. So, no real gain.

I am not an expert, but I believe rollovers into NY's 529 plan are deductible. Along a similar line, you can rollover a Coverdell IRA into NY's 529 and get a deduction as well.
Now it makes sense.